Hillman Solutions (HLMN) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted EBITDA increased by 18% to $68.4 million compared to $58 million in Q2 2023, with adjusted EBITDA margins improving to 18% [6][12][27] - Full year adjusted EBITDA guidance increased to a range of $240 million to $250 million, reflecting a 12% increase over 2023 [6][30] - Net sales for Q2 2024 totaled $379.4 million, essentially flat compared to the prior year quarter, with a revised full year net sales guidance of $1.44 billion to $1.48 billion, reflecting a 1% decrease from 2023 [7][10][30] Business Line Data and Key Metrics Changes - Hardware and Protective Solutions (HPS) net sales increased by 3.5%, driven by new business wins and contributions from the Koch acquisition [13] - Robotics and Digital Solutions (RDS) net sales decreased by 8%, impacted by softer traffic and discretionary spending [13][14] - Adjusted gross margins for the quarter improved to 48.7%, a 570-basis point increase from the previous year [12][26] Market Data and Key Metrics Changes - Canadian business net sales decreased by 10.1% compared to the prior year quarter, attributed to a softer market and economy [17] - Existing home sales in the U.S. have decreased significantly, impacting overall market volume [11] - Overall market volumes were down about 4% for the quarter, excluding new business wins and M&A [10] Company Strategy and Development Direction - The company plans to continue executing low-risk tuck-in acquisitions, with a focus on adjacent aisles, and expects to close on an acquisition similar to Koch by the end of Q3 [9][23] - Emphasis on product innovation and leveraging the Hillman Moat to drive growth and maintain competitive advantages [19][22] - The company aims to maintain operational efficiencies and margin management to support future growth, even in a challenging macro environment [30][31] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro environment is soft, impacting net sales expectations, but expressed optimism about future top-line growth prospects [7][8] - The company is confident in its ability to manage costs and maintain margins, similar to the performance seen in 2009 [6][31] - Management highlighted the importance of maintaining strong relationships with customers and executing well during the current cycle [17][19] Other Important Information - The company ended Q2 2024 with a net debt to trailing 12-month adjusted EBITDA ratio of 2.9 times, down from 4 times a year ago [8][29] - Free cash flow for Q2 was $42.5 million, a significant improvement from a cash use of $6 million in the previous quarter [12][28] - The company is focused on maintaining a strong balance sheet while pursuing growth opportunities [29] Q&A Session Summary Question: What areas is the company looking to expand into with M&A? - Management indicated that they are excited about a potential acquisition similar to Koch and mentioned categories like plumbing and electrical as areas of interest [36][37] Question: What is the visibility on home center foot traffic? - Management noted that foot traffic has been slightly less negative recently but remains challenging overall [38] Question: What has surprised management this year regarding market conditions? - Management expressed surprise at the market's stagnation after an initial positive outlook in early 2024, particularly noting the decline in DIY activity [39][40] Question: What is the outlook for RDS in the second half of the year? - Management is optimistic about RDS returning to growth in 2025, citing new machine capabilities and recent account acquisitions as key drivers [41][42] Question: How will the leadership transition impact the company? - Management stated that while there will be a new CEO, the strategic direction and day-to-day operations will remain consistent [55] Question: What is the current M&A pipeline like? - Management confirmed a healthy M&A pipeline with opportunities for multiple acquisitions per year, particularly in the $4 million to $8 million EBITDA range [56][58]